Question

A company has the following per unit original costs and replacement costs for its inventory: Part A: 5 units with a cost of $5, and replacement cost of $4.00 Part B: 10 units with a cost of $6, and replacement cost of $7.00 Part C: 10 units with a cost of $3, and replacement cost of $2.00 Using the lower of cost or market method applied to the individual items, the total value of this company's ending inventory is:
(A) $100.00
(B) $125.00
(C) $110.00.
(D) $115.00.

Answer 1

Answer:

Option (A) is correct.

Explanation:

Part A:

Cost = No. of units × cost per unit

       = 5 × $5

       = $25

Replacement cost = No. of units × cost per unit

                              = 5 × $4

                              = $20

Value to be recognized = $20

Part B:

Cost = No. of units × cost per unit

       = 10 × $6

       = $60

Replacement cost = No. of units × cost per unit

                              = 10 × $7

                              = $70

Value to be recognized = $60

Part C:

Cost = No. of units × cost per unit

       = 10 × $3

       = $30

Replacement cost = No. of units × cost per unit

                              = 10 × $2

                              = $20

Value to be recognized = $20

Therefore,

Value of Ending inventory = Sum of recognized value of all the three parts

                                            = $20 + $60 + $20

                                            = $100

Hence, the total value of this company's ending inventory is $100.